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Five Things You Must Know Before Seeking Funding For Your Startup

Growth Advisor at 500startups, Plug and Play Center, and Techstars. Best-Selling Author and The Oracles Member. Follow Sweta on Instagram.

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You just presented the pitch of your life. The investor really loved it. Give yourself a round of applause -- you deserve it! You’re doing your dance because the investor agreed to the amount of funding you requested. This is exactly what you wanted -- now you have the green light to start everything.

But, right as you're about to move forward, your key investor bails. You feel your body drop as if you were on a descending airplane. You are back to square one.

I have seen investors pull out and not follow through and this usually leads to payroll issues with the team. I advise startups to focus on their vision and mission of how they will get there instead of focusing on the funding. The funding isn’t an issue for founders who have a clear mission and a gift they want to share with the world. With that said, there are several things to consider when you’re ready to seek an investment.

Investors don’t care about NDAs.

When you have a great idea, the tendency is to protect it like it’s the Holy Grail. Taking the steps to patent and protect your invisible asset is smart, but when it comes to venture capitalists (VCs), sometimes you need to take a different approach.

Ideas are a dime a dozen to VCs -- nothing is so incredible to them that it requires reinventing the wheel. Even a unique idea is only as intriguing to them as the team that comes with it. They’re more interested in your ability to execute because that will be the true differentiator. When a VC receives a non-disclosure form (NDA), it’s a joke to them. They’ve seen it all and they have no inclination of stealing your idea. It would be like building a wall to protect your country from Switzerland.

Instead, build trust with potential investors. If you really want to wow a VC, then don’t hand them an NDA. It will surely slow down the process of getting funded. Focus on doing better and striving to win an investor's trust first!

Not every investor is the right one.

As a startup founder, view your limited time like sand trickling down an hourglass. Sometimes it’s difficult enough just to schedule a meeting with an investor, and you often can’t tell if they’re going to erode your time or not. It is essential to focus on extremely interested investors when trying to scale and receive funding.

At one information technology startup I worked with, we found a simpler way to distinguish interested investors from flaky, half-hearted ones. We ask indirect questions to gather information. Questions like, “On average, what’s the amount you usually invest?” and “Can we speak to other founders you have also invested in?” We try to understand their area of expertise so, in turn, they could provide us with more advice than just money. Don’t let disappointment be your destination. Aim to understand investors and what else they are willing to do to add more value to your business.

Fear of missing out in the VC world is real.

When you focus on your mission, you will see that the money will follow. I can recall startups that I have worked with -- who focused on their mission -- in positions where they were able to refuse funding when it came to them. That’s right. They didn’t need the funding because they were involved with the team and the mission. They also had a solid product that people wanted. When you focus on the mission, VCs will often want to invest because they feel as though they are missing out if they don't.

Make sure you do your homework.

The way you convey your message to customers and investors says a lot about the potential of your company. Investors want direct answers and they need you to address their fears head-on. If they have to tell you what their fears are, you haven’t done your homework. Working in the startup world, I had to learn not only how to calm their fears but also how to handle crises gracefully. The investor had to have faith in my ability to turn my idea into revenue and kill the surrounding competition.

This became very clear to me when I had the opportunity to judge the Tech Coast Angels event last spring. I watched founder after founder face the realities of pitching their dreams, and I realized those who stood out were the ones who were able to successfully communicate their capabilities. You can only convey your capability through good communication. The other startup pitches showcased a lot of ambition and “dreamy talk” but failed to spell out the direct route to success that could have bred confidence in their listeners. There were too many unknowns -- dark, fuzzy areas -- that left me with a feeling that the high-level expertise was missing.

The way you communicate is everything. When you communicate with investors, make sure you communicate often and directly. Address their fears and make them feel comfortable around crisis situations.

The team matters more than you think.

There’s nothing worse than having a team that dislikes your leadership. This is why chemistry outweighs industry knowledge. If you are looking to hire people, my best suggestion is to start small and give them a 30-day trial. Once they surpass the 30-day trial and you still value them on your team, then it’s time to move forward. If you can’t seem to pinpoint their value, keep hiring. My rule of thumb is that the right teams don’t happen by accident -- you have to always be on the lookout and, more importantly, continue hiring until you find the perfect fit.

You have a startup to build. Be mindful that many VCs aren’t interested and will waste your time. Don’t be at their mercy. Instead, build something mission-focused that will have a large impact on others. Attracting the right VCs will follow.

Young Entrepreneur Council (YEC) is an invitation-only, fee-based organization comprised of the world's most successful entrepreneurs 45 and younger. YEC members represent nearly every industry, generate billions of dollars in revenue each year and have created tens of th...